seeking help for irs tax debt
My credit is not too terribly poor compared to some, but I have a few
marks on there I could use some advice with if available.
In 1992, shortly after getting out of 4 years in the Marine Corps, I
divorced my unfaithful wife of 3 years, who unknown to me was carry
around a large amount of money from a previous divorce settlement
resulting from the sale of their mutual home. Okay, I was young, a
Marine, she was pretty...that was enough back then when I was a kid!
Short story, while we are seperated, the IRS comes after both her and
"me" looking for $12.5k, because we were married and filing jointly.
We meet with an IRS Agent. I explain my side of the story and the
agent tells us both to go away while the look into it further. No news
is good news for awhile and we finalize the divorce and she virtually
dissapears (I swear to goodness, she went to Alaska on one of those
"Find a Husband" ventures and to this day I have not heard one word
from her) and shortly thereafter I get a collection notice, lein and a
wage garnishment from the IRS for the $12.5k plus penalties.
I have no idea what to do, and I am embarrassed because I was a young
rookie cop at the time, and a garnishment against my wages was going
to look bad to the chief. So I call the IRS and make arrangements for
$50 payroll deduction to go directly to the IRS twice monthly, and as
the agent said, was acceptable but would take forever to pay off the
debt. In addition, I was told I would receive no tax returns owed
until the money was paid off. So there....I took responsibility for
the debt as far as the IRS is concerned, I know that now, but I had to
take action then.
So life goes on and the deductions from my pay become pretty much
transparent for me, except I get no tax return due each year...but I
never really had a reason to worry about my credit back then. I was
single, stupid and as a cop, I rented apartments close to the station
for little or no rent and no cedit checks because they liked having
cops live there, and the one time I did get a car loan, I remember
explaining to the dealership manager about the Federal tax lein that
he saw on my credit report, and when I explained it to him, I was
financed immediately at standard rates and life again went on.
Again, the deductions were so transparent that when I left the PD for
a corporate management position in 1996, the deductions to the IRS
never crossed my mind...they had been amde automatically for years and
out of sight, out of mind kinda thing. Also, in 1996 I married my
current wife of 11 years (Yea) and we discover we are going to be
parents. Fast foward to Jan 1997 and our beautiful baby boy is born
with catostrophic congestive heart failure...an totally antrophied
left heart, and he undergoes 4 major open heart surgeries as well as a
number of lesser surgeries in the next several years following birth.
Now he is a relatively healthy, happy and handsome 10 year old boy, so
I am not looking for sympathy, but trying to impart that during that
period, my wife and I were learning how to cope with basically living
in the hospital for months at a times. I began getting letters from
the IRS, who had realized they were no longer getting my deductions,
but basically I had two things on my mind, neither of which involved
IRS... Make sure my son was well cared for and make sure we had good
health insurance.
I remember when my employer then suddenly announced the relocation of
operations out of state and akthough he offered to move me as well, I
had to decline...we did not want to take our son aware from the
surgeon who saved his life and the cardiology group and pediatricians
who looked after him. So I found myself the very day after they moved
working for a car dealership selling cars. I had a good friend and
retired cop working there and the boss said they could provide me a
group health insurance plan if I started on the first day of the
month...so I am a car salesman.
Meanwhile, the wife was not working because when my son was not in the
hospital, he was under her constant care, bless her heart, and at this
point, we have pretty much abandoned our apartment and living either
at the hospital or crashing at her parents house within 10 minutes
from the hospital (We were blessed with the #2 pediatric cardiolgy
surgeon in the country right here in our town), My wife is an only
child and my in-laws became fully immersed in my son's care as well.
Although car sales was meant to be only temporary, I soon realize
anyway that I was pretty much a failure at it - too honest I suppose.
Money started getting real tight and her parents did not ask, they
demanded we dump the monthly rent for the aprtment we were not using
and move in with them. I had never been big on credit cards in the
past and never applied for one, but did at that point with my bank,
thinking I needed it to help get by unti things got better, but I was
immediately rejected due to lack of income, no real credit history and
I imagine the Tax Lein on my CR reports.
So what did I do...I took the first unsecured credit card offer that
came in the mail from Captitol One, with a $300 limit and and high
percentage rate and off I went. I took another from Orchard bank, same
$300 limit. Of course, it did not take long for the card fees
themselves to help max out the limit, and while we were making the
minimum monthly payments, I noticed several fees on both CC invoice
statements indicating such fees for card insurance, fraud protection,
privacy protection, and more. I knew I did not authoirze those when
filling out the application as I remembered they were seperate
checkoff boxes I opted not to checkoff. Of course, I call the lenders
and am told that although I had not checked the boxes, my credit risk
required the cards have this. I complained with little effect, stopped
using the cards and on the advise of a "friend" promptly called the
both lenders and told them I wanted to cancel my account.
MInd you, I was very immature at the time and took no notes, nor
recorded any of the information, but the call takers informed me they
would talk to their supervisors about the charges and get back to me,
as they did not want to lose my business...both card issuers, as funny
as that sounds. A few months go by and honestly, the wife and I are in
and out of the hospital and I open up letters from each company...both
accounts had been cancelled and extensive interest and penalties had
added up and the full amounts were due immediately...one card actually
had $1,400 plus in penalties on top of the $300 credit limit and the
other had $450 and change. Of course, I have some very unpleasant
conversations with the card companies and out of frustration, made a
deal to pay off the $300 limit and a modest amount of the penalties
just to make it go away. I borrowed the money from my in-laws and and
sent the funds Western Union.
Within a few months, I get statement letters from both card issuers
with an "outstanding" balance for the interests and penalties, so once
again I call only to be told to disregard these notices, as they now
see indications in their computers that the accounts were closed and
"Settled" and they would ensure I receive no further notices..almost
as if both companies were following the same scritp, huh?
So, life starts to settle down...I get a gov contracting job paying
great money, the kid is settling in to good health and in school and
we are still living with her parents, which was actually working out
great because the house is large, we are great friends and they love
having their grandson with them. But more importantly, they are
falling on financially poor times as well and my mother-in-law is
having more difficulties with her mild MS symptoms and my wife is
helping her as well. We are still all living together and my wife and
I have been paying a great many of the bills, including the mortgage,
food and utilities for well over 5 years now.
So now it's 2003 and during a background investigation for a T/S
security clearance for work, the investigator shows me my credit
report and wants to know about the two credit card "Charge-Offs", as
well as the Tax Lein. I explain as I did above, telling her I had no
indication they should be listed as Charge-Offs (did not really know
what that meant anyway), and she goes away...a week later my clearance
is approved. At this point, yeah, I am wondering about my credit
report, but just too busy in my own mind to look into it further.
After all, our one financial need at the time was a new "Soccer Mom"
van, and when we went to my friend at the dealership, there was no
problem getting financed through Ford.
So here I am in 2007 and like some lower forms of humans, have decided
it was time to take action only because I have to...I wish I had a
better excuse, but I don't. My dear in-laws have their entire life
savings pretty much tied up in the equity of their home, with nothing
more than social security for income, and want to/must sell in order
to get back on their feet. The mortgage is almost paid off andif I
told you the house value on somethng built in 1960, you would
die...trust me, the sale will allow them to have a very good nest egg
as long as they relocate to an area with a much lower cost of living.
The good side of that is they will have much more house for far less
money, little or no mortgage and be away from this fast paced
area...and although they want and expect us to move with them, we
cannot. They took us in when we needed help, we have been blessed with
supporting them as they have needed help, but my wife feels that even
though it will seperate them from their grandson, which breaks my
heart too, it is best.
I have no idea what my FICA score is, but I received copies of my
credit reports from 2 out of 3 CRAs...I had some log-in issue with
Transunion and need to follow up with a call to customer service, but
for the other two, I have my records showing the 1992 Tax ...
_You're in a mess. There is no easy way out. But there is a way out.
First, you need to hire a lawyer to deal with the IRS issues and any issues
on your credit report that you think you can iron out. Nothing less than
legal action will work, at this point. AFTER the IRS and charge-offs are
dealt with, you need to wait at least a couple of months, then re-check all
three of your credit reports to make sure that all the negative information
is gone.
You also need to come up with about $20,000 cash ON YOUR OWN, somehow. Not
for a down payment on a house, but for CLOSING COSTS on a mortgage to buy a
house. The only good news is that, because you are a vet, you should be
able to get a zero down VA loan. But that zero down VA loan is still going
to be QUITE expensive, in terms of up-front money. That's what the $20K is
for. You might not need all of $20K, but aim for that figure and get as
close to it as you can, in terms of liquid cash money (or in a passbook
savings account or something else that is secure and can be liquidated
FAST). Also, KEEP PAPER RECORDS of how you aquired this money. In applying
for the loan, the VA (and/or underwriter) is going to want to know where the
money came from, and you will need to provide documentation to back up your
story. With a six-figure income, you should be able to toss significant
percentage of your paycheck to savings, maybe even set up direct deposit.
But for each deposit that you make, keep the receipt AND NOTE THE SOURCE.
("direct deposit from paycheck, pay period ending 2/27", for example) If
you use direct deposit, make sure to keep hardcopy bank statements, or print
them, to show the deposits.
OH, something you need to do immediately (almost forgot) is apply for a VA
loan certificate. This is not a loan, just a document from the VA stating
that YES, you are eligible to apply for a VA loan to buy a house. You just
need to fill out the proper form with information on your active duty
status, I hope you have a copy of your DD214.
Right now, because you haven't applied for a mortgage yet, you might be
wondering why you have to come up with $20,000 on your own, with no outside
help. This is why. Simply stated, to get any significant loan (like a
mortgage), you pretty much have to prove that you don't need the loan.
That's kind of bizarre, twisted logic, but that's the way it is.
Underwriters want to know that you COULD buy a house, without a mortgage, if
you had enough time to save up the money. If you can prove that, then you
qualify for a mortgage to buy a house. (!) Right now, if you apply for a
mortgage with bad credit, no liquid assets and no other factors (such as VA
loan guarantee), you will get rejected. Liquid assets are needed to qualify
for the loan, PERIOD. Usually about 20% down payment on the house is
required. Closing costs are always paid by the buyer, up front in cash. So
that's about 30% total that YOU have to come up with, in cash, up front.
Or, if $300K property, about $90K that you have to come up with before you
apply for the mortgage. OUCH. Yeah, I know, that can be kind of
discouraging to someone in your financial situation.
The workaround:
VA loan, if you qualify (which you do, if you were active duty in the
marines, honorably discharged) qualifies you for zero down programs at most
lenders.
Zero down conventional mortgage: Probably not applicable, as usually
reserved for people with good credit. But if you could get it, it is
essentially a 2nd mortgage to help you qualify for a 1st mortgage, which is
a really bad idea. The bank loans you the money to qualify for the primary
mortgage and at the same time rolls what you owe into a 2nd mortgage. Ouch.
EITHER WAY, still need to come up with closing costs. The lender can give
you a more reasonable estimate of closing costs, but for now, figure 10% of
sale price of whatever property you want to buy.
Another thing, as the houses are about $350K in your area, you will need to
shop elsewhere and commute. Either that, or spend several years trying to
save up about $35K minimum to qualify for the mortgage (closing). A more
reasonable goal would be to save up about $20K for closing costs and set
your sights lower by moving a half-hour or more away from the area, to an
area with more reasonably priced homes.
Now if someone is willing to help you with down payment, that's WONDERFUL.
Unfortunately, it won't help you at all. Theoretically, if your parents (or
your wife's parents) give you a $50K loan to use as a down payment, the
mortgage application WILL be REJECTED. See, the underwriter wants to know
that you can come up with that $50K (or whatever) on your own. If someone
loaned it to you, you are back to ZERO. You haven't proven that you don't
need the money. Someone loaning you the money has proven that you DO NEED
the money.
The workaround to this? IF you can get someone to give you money as a gift,
with no re-payment expected, and document that the money IS a gift with no
re-payment expected, then that (ironically) is OK with lending institutions.
You obtained the money legally, from a verifiable source (it was a gift, and
documented as a gift). Now if your parents (or in-laws) are willing to give
you a "gift" (wink wink) and expect you to pay it back as a loan, don't get
caught. That's called fraud, and your whole family could end up in prison
that way.
In short:
- Apply for VA loan certificate
- Lawyer to clear up IRS and charge-off issues
- Verify credit reports are clean
- Save up at least $20K somehow that you can document, without getting the
money from someone else
- Set your sights lower, by moving to a less expensive area.
- Keep in mind that even IF you buy a cheaper house in another area
(commute), the $20K (figuring a property worth $200K) will only cover
closing costs
- Use your VA loan to get a zero down mortgage
Other thoughts: Be aware that applying for a mortgage is the single most
stressful thing you will do in your life, even if you have significant
liquid assets and GOOD credit. After closing, you will want to throw a party
_The cost of the lawyer is a non-issue at this point. IMHO Fact is, you
need to get the IRS situation straightened out, and you will need a lawyer
for that. I don't know if a lawyer can help you with the CRA issue. And I
wouldn't normally say that hiring a lawyer would be a good idea for the CRA
issue. (not worth it, low benefit/cost ratio) HOWEVER, you will need to
hire a lawyer anyway. A lawyer dealing with the CRAs will get results much
faster than you can. If you gotta spend the money, you might as well get
maximum benefit out of it. So hire thee a tax lawyer and see if they will
help you with the CRA as well (can't see why not, as long as you are paying
them, ha ha).
I would expect the lawyer bill to be thousands (don't know, as I've never
had to resort to this, thankfully, but I hear they are expensive!).
However, if the tax mess can be straightened out, it will be worth it. And,
you might come out ahead in the end. With owing (tens of thousands?), if
you can get the IRS to settle for any amount less, then the money you save
might pay the lawyer's fees.
But in any case, you need to settle with the IRS somehow long before you try
to apply for a mortgage. So the question you should be asking yourself
right now is, where do I find a good tax attorney?